State Auditor Tom Salmon has been critical of the City of Burlington’s financial accountability. Now he is questioning officials’ apparent rebuff of his offers of help in spite of a fiscal track record that has led to questions about the city’s protocols.
The scrutiny comes in the wake of the Burlington Telecom scandal, in which Mayor Bob Kiss and then-Chief Administrative Officer Jonathan Leopold kept a $16.9 million Burlington Telecom debt to the city treasury secret. A plan to obtain new commercial financing failed in late 2009 when the City Council, alerted to BT’s troubles, refused to authorize new debt.
The latest dust-up concerns a checklist Salmon sent to Burlington officials in early January that includes 109 questions about the city’s internal fiscal controls.
Acting Chief Administrative Officer Scott Schrader has responded to Salmon’s request. But in a letter accompanying the completed checklist he also raises questions about the “concerns of citizens” that are driving the inquiry and the relevance of some of the questions for Vermont’s largest municipality.
Last year, Burlington held a Budget Summit, hired a new audit firm, and heard from an Audit Advisory Task Force that recommended educating the public about the city’s audit and other financial procedures. Reports about the latest audit have been positive.
The point of the checklist, Salmon told VTDigger, “is to find out if management understands their responsibilities.” On Feb. 22 he will provide the keynote talk at a Burlington Finance Summit, a follow-up to the Budget Summit that will start at 7 p.m. in City Hall. Participants will include Schrader, School Department CFO Karen Groseclose, State Treasurer Beth Pearce, and the three candidates for Burlington mayor.
On Jan. 3, Salmon wrote to Schrader and City Council President Bill Keogh about a “preliminary review” his office was conducting. Along with the notification, he included the checklist, which he asked officials to return by Jan. 30.
The review, Salmon explained in a letter, is a “non-audit, low-level step taken by our office to clarify a situation regarding the performance of a unit of municipal government.”
“This request is driven by concerns of citizens over the financial management of the city,” Salmon wrote.
CAO Schrader said last week that the city’s reply probably didn’t reach Salmon by the date he wanted. Although the response was dated Jan. 27, Salmon told VTDigger that he didn’t see it until about a week later — several days after he told the House Government Operations Committee that Burlington was being “aloof on the issue of financial accountability.”
In a letter to City Council President Bill Keogh, Salmon complained about his “blatant disregard.” He wrote that his offer to provide professional support had been “curiously turned away.”
The auditor’s original letter, Schrader’s reply and the completed checklist were distributed to the City Council at its Feb. 6 session.
Schrader said it was difficult to “respond appropriately” to the request without more details about Salmon’s concerns. He also wondered what “situation” Salmon was attempting to clarify.
Salmon said his office received about 70 formal and informal inquiries from Vermonters about various cities and towns last year. Of those, he estimated that about 10 percent came from Burlington, covering topics such as the handling of Burlington Telecom, the audit process and “not getting checklists.”
Lea Terhune, a steering committee member of the Ward 4 Neighborhood Planning Assembly, has been actively pursuing the matter. Last year, from June to September she circulated copies of the checklist, obtained from the auditor’s office, “to everyone I could think of,” she recalls.
Terhune emailed city councilors, pursued the issue with the Finance Board and sent copies to mayoral candidates and the press. But “no one was interested,” despite concerns about a possible vulnerability to embezzlement, she said.
“We passed on auditing BT because we didn’t want to be in a political crossfire,” Salmon told VTDigger.”
In September, Terhune’s neighborhood assembly passed a resolution urging the city to complete the internal controls checklist recommended by the Vermont League of Cities and Towns and the Office of the Vermont State Auditor. The resolution also asked the city to publicly release the checklist after certification by an accountant. The resolution failed to reach the discussion level at the City Council.
“Timeline is significant,” Terhune argues, “because at some point they all had to admit they were familiar with the internal controls checklist because I wouldn’t stop talking about it every chance I got.”
Salmon wouldn’t confirm whether Terhune filed a complaint about Burlington to his office. He stressed that he has been trying to consult with the city about its financial management for several years. He provided a Jan. 14, 2011, letter to Keogh and Mayor Bob Kiss in which he reviewed negative press reports about Burlington Telecom and the city’s credit rating, along with his previous offers to assist. “I was principally told that we were not needed,” he said.
“We passed on auditing BT because we didn’t want to be in a political crossfire,” Salmon told VTDigger. “We have a long history of patiently standing by. But they [city officials] don’t understand that they are not exempt.”
Schrader’s letter defended the city’s practices and argued that the checklist Salmon sent him “was intended to assist small Vermont municipalities not subject to independent and single audit requirements.” He added that no other Vermont community “undergoes a more rigorous and detailed review of its finances.”
Steven Jeffrey, executive director of the Vermont League of Cities and Towns, sees merit in Schrader’s argument. “Burlington is more than likely subject to a lot higher reporting and review than most or every other town in the state,” he said. The city is a direct recipient of federal grants, he noted, and is more than twice as large as the next largest Vermont town.
Salmon says that Schrader “missed the point” of his inquiry. “Internal control checklists help to prevent fraud,” he added. “Part of the reason to send a checklist is to see if they know the answers.”
The State Auditor’s office developed its list of questions in consultation with the League of Cities and Towns, which has since modified the checklist. “Our version looks at professional standards,” Jeffrey explained. “We’re trying to use a single or very few types of questionnaires for getting all municipalities to address these questions.” He said the league’s checklist was not designed for larger communities.
The document provided to Schrader was headlined as the “City Version” of a long form checklist posted on the auditor’s website “for the use of town financial officials.” The only apparent difference between the two is one added question: “Has there been a theft or embezzlement in the last 10 years?” Schrader marked the “No” box.
A related question was whether records are protected from fire, theft and manipulation. Although “Yes” was checked, the word “reasonably” was added as a clarification. Asked if “all disbursements, except petty cash items” are paid by check,” the city added the note that some are handled electronically.
The checklist also included the following question: “Is internal control the responsibility of management, and specifically the City Council?” The response: “The City Council is not the manager but yes.”
Terhune isn’t happy with some of the responses. In an email, she pointed to five places on the form where answers are accompanied by a question mark and the word “unclear.” The auditor’s office could have helped, she said. “Citizens of Burlington deserve better than this.”
Schrader said he was drawing attention to questions he considered “unclear,” including whether any non-city funds are deposited in city accounts, whether employees who handle cash also post the activity, and if school, highway and grant monies are “in separate accounts in the ledger.”
Salmon said Schrader is doing his job. “My issue is about how management does its job. That’s why problems have gone on as long they have,” he said.
The most recent annual audit of Burlington’s finances indicates that considerable progress has been made since last year, and many past problems have been addressed. Last week the council reviewed the audit by Melanson Heath & Co. of New Hampshire. It is now available on the city’s website.
Burlington’s total net assets were $318,883,717 at the end of the fiscal year, an increase of $41,809,304. The analysis notes that “net assets may serve over time to be a useful indicator of a government’s financial position.” Total assets were $559 million.
The balance in the city’s general fund increased 36 percent, or by more than $3 million.
Several sources of revenue exceeded expectations, including gross receipts taxes, franchise fees and fees for services. Codes enforcement permit fees generated $1.3 million more than projected.
On the other hand, the unfunded liability in the retirement fund was $55 million, an increase of $6.3 million. The city’s annual contribution has increased significantly over the last five years. The report acknowledges that Burlington has “adopted several changes to the retirement benefits, and the City now requires all eligible employees to contribute to the plan.”
